Greg Schaefer, president and founder of Schaefer Enterprises Inc (SEI), said the automotive industry started the need for product recall insurance.
“There are different levels of insurance, if we continue using the car metaphor, you can have better speakers, leather interior etc so each company is different,” he told FoodQualityNews.com.
“The food industry is not the hardest to insure, it is actually quite favourable but it varies between products.
“The number one obstacle is that the supermarket thinks they did not create the product so it is not their problem but if there is a recall it is everyone’s problem.”
SEI specializes in insuring grocery stores, supermarkets, restaurants, manufacturers and wholesale distributors.
Types of coverage
Schaefer said the big misconception is firms think with product liability coverage they are covered but it is only one facet due to recall possibility and the financial burden.
Product Liability coverage is for manufactures of a product. It protects against cost of judgments, settlements and legal fees from damages or alleged damages caused by a faulty or defective product.
Product Recall liability coverage is for manufactures and distributors of a product. It protects against loss of income because of a recall. It provides reimbursement for the loss of income and product disposal due to the recall.
Schaefer said food stores have started making their own prepared foods which wasn’t seen in the past.
“A big factor is cost, stores with a reputable brand and success have managers who understand the need for insurance,” he said.
“With the smaller guys it is not as successful or they don’t understand so are more hesitant to purchase, so we go through why they need it and where is the risk.
“In the New York stores I work with, prepared foods are being made and created on their own premises so they need product recall coverage whereas stores such as Walgreens which sell the products of others don’t so much.”
General Liability protects against accidents and injuries on company and customer property.
Spoilage Coverage protects perishable property and stock damaged by a change in temperature or humidity resulting from a power failure or equipment failure.
When looking at insurance, key things to look at include who are the end users, what is the product, would it harm someone, what risks come with it and what does history tell us, said Schaefer.
“Regulation has made it better but the question most often asked is where it manufactured,” he said.
“With international exposure companies get scared about it meeting US standards and how to handle a litigation situation because if you need to recoup funds or damages from China or Japan it is almost impossible.”
Schaefer said it was common for anyone who develops a product to have product recall insurance but it varied across SMEs to the bigger companies.
“I would say for the big firms 95 to 100% carry product recall at that level as they can self-insure for millions, the smaller people don’t have the education on why they need it and that adds to the situation as they can go bankrupt quicker than a big company.”